For a More Ethical Business, Hire Women and Discourage Groupthink

Sallie Krawcheck, the renowned Wall Street market analyst, sees two major problems with the way the finance industry operates: a lack of integrity, and a lack of women in leadership positions. Are these two problems related somehow? You bet. Krawcheck, who was forced out of her job as CFO of Citigroup and head of its wealth management division in 2008, says her company’s intolerance for dissent led to a well-publicized schism with her boss over how honest her company should be about its mistakes.

“I was fired because I was a woman,” she says. “It wasn’t because I had a different body. It was because I had a fundamentally different perspective than my boss had.” The dispute was over whether the bank should compensate clients who lost money on a bad investment that her division made. Krawcheck thought that the firm had sold products as low-risk that turned out to be high risk, and therefore had an obligation to return the money. “We weren’t evil about it, it was just sort of a dumb move,” she says. “I advocated returning the money and was eventually fired for that.”

Krawcheck says doing things her way would have cost money in the short run, but would have paid off in the long run by making the company’s relationship with its clients. “The research would indicate that women tend to be more long-term focused, and the argument I was making was a long-term argument,” she says.

Krawcheck believes more diverse leadership would be good for companies as well as good for women, which is why in 2013 she bought the women’s professional networking group 85 Broads and re-named it the Ellevate Network. Krawcheck spoke at a meeting of the central New Jersey chapter in April, 2015.

Krawcheck has always felt like something of an outsider. She grew up in Charleston, South Carolina, where her father was a lawyer, one of the few Jews in the area, and her mother was a homemaker. Krawcheck went to an a tight-knit, all-girls school where she was an outsider. “I remember what it was like decades ago eating lunch alone and being made fun of by the other girls,” she says.

Krawcheck says the experience left her with a feeling of insecurity and a desire to prove herself. By high school, she had made great strides to become one of the popular kids and had a spot on the cheerleading squad and a football-playing boyfriend to prove it. The high school Sallie Krawcheck seemed headed more for a sorority house than for Wall Street.

“When I was in 11th grade and highly impressionable, my guidance counselor saw me walking down the hall with my then-boyfriend and giggling away in my cheerleading outfit. She pulled me aside by my arm and said, ‘You could do better. Work at your grades, work at your SATs, and work at your scores. What are you going to settle for?’” The talking-to worked, and after graduating from high school in 1983 Krawcheck went to UNC and earned a degree in journalism. While training to become a business reporter, she became fascinated by the finance world and got an MBA from Columbia in 1992.

She started her career as an analyst with Sanford Bernstein, where she immediately took what could have been a career-killing risk. One of her first jobs was to write an analysis of American General, a life insurance company. It was 1994, and Sanford Bernstein was making a lot of money as an institutional investor, selling shares in the same businesses they were analyzing. “I was told that it was essentially a fireable offense to write negative research,” she says. “The best thing that could come from it was that people could give me grudging respect if I was right. If I was wrong there was an infinite downside.”

But Krawcheck, always trying to prove herself, couldn’t help but take the risk of being honest. The payoff turned out to be much more than grudging respect when the entire stock market crashed. She quickly stood out from her follow-the-pack peers and built a reputation for impartial analysis. Krawcheck rose through the ranks at Sanford Bernstein all the way to CEO and took the company out of institutional investing. She was even named “The Last Honest Analyst” by Fortune magazine in 2002.

She became CFO of Citigroup in 2004 and in 2008 joined Bank of America, where she headed the wealth management division of its new acquisition, Merrill Lynch. She led a turnaround effort of the troubled company, bringing in thousands of new analysts and making $3.1 billion in profits before leaving in 2011.

In 2013 she bought the networking group 85 Broads from its founder, Janet Hanson. Her first order of business was to change the name. “The 85 Broads name, which was a great name in its day, had gotten old for a few different reasons,” she explained. “The original pun was that it was based on the Goldman Sachs headquarters [at 85 Broad Street in New York.]” It started as a Goldman Sachs informal online network but had long since diversified out of Goldman and out of financial services. The pun no longer held.

Krawcheck chose a new name combining the feminine French word “elle” with the idea of upward mobility. Today the organization boasts 34,000 members in 40 regional chapters around the world. The central New Jersey chapter regularly hosts networking events and workshops in the Route 1 corridor — visit www.ellevatenetwork.com).

Krawcheck’s latest venture with Ellevate was the creation of the Ellevate Global Women’s Index Fund with Pax World Funds. The index fund invests in businesses all over the world that have women in positions of power. Companies in the Ellevate fund must have one third of their boards and one fourth of their management team made up of women. The global average is 11 percent.

“Gender diversity is good business,” Krawcheck says. “This came out of my latest experience in the finance industry, which, you might have noticed, is not particularly diverse. That causes groupthink, which led to the financial crisis. Everybody talks about greed, talks about banks being reckless, but very few people talk about what I saw, which was groupthink. How do you break it? The answer is diversity. One type of diversity that is out there is gender diversity.”

The analyst in Krawcheck likes diverse companies because of research indicating that they have superior operating performance compared to companies that are more homogeneous. Promoting companies with a good ratio of female leaders also helps Ellevate’s cause. “We want to invest in companies that advance women,” she says. “We want returns — but we want to invest in things that matter to us.”

There are things that people can do on a smaller scale to make workplaces better for women. Krawcheck does not endorse some of the latest fads in feminism in business such as Sheryl Sandberg’s “Lean In” advice for women on how to advance at work.

“So much popular advice is telling women how to fix themselves; how to act like men,” Krawcheck says. Krawcheck instead offers advice to men on how to treat female employees better. “How can men be helpful? The answer is, give us feedback. Women get less feedback in the workplace than men do. Men are scared that we are going to cry. But no one is born knowing how to lead and manage. It’s a learned skill and men therefore get many more lessons in leadership and management than women do. Give us feedback.”

She also says flexible work schedules would help both men and women work and raise families at the same time, and that there should be no “pink ghetto” stigma attached to changing one’s schedule to accommodate family life. — Diccon Hyatt

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